TSMP Law Corporation partner Felicia Tan was quoted in a Business Times article on 03 July 2021 that explains the liquidation process. She commented on some of the legal aspects of this.
She said that consignors are in a similar position as trade creditors. Goods consigned might have been used or sold during the course of business before the business went belly-up. Payment obligations to consignors or trade creditors are bound by the terms of the specific contract.
“If the consignment agreement (in the case of consignors) or sale-and-purchase agreement (in the case of trade creditors) did not provide for any upfront deposit and the creditor is unable to retrieve any of the goods, such creditors would be in a very rough position as they would rank pari passu (equally) with other unsecured creditors who might recover just a few cents per dollar of debt. Security deposits, shorter payment terms and regular monitoring of payments are certain self-help mechanisms to be explored,” she said.
Holders of vouchers and stored-value cards are unsecured creditors, while customers on discount membership programmes are generally not entitled to any claims.
She added that customers who bought air miles might be entitled to claims as unsecured creditors. It comes down to the terms and conditions of the programmes, be it a discount membership or mileage system.
She said a creditor who has obtained an order from the Small Claims Tribunal prior to a company’s liquidation does not rank ahead of other unsecured creditors.